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Panel: U.S. can keep steel tariffs

| Friday, April 15, 2005

The U.S. can maintain its tariffs on steel imports from Japan, Russia and Brazil, after an independent trade panel found that removing the duties would harm the U.S. steel industry.

The duties on hot flat-rolled steel -- ranging from about 20 percent to 50 percent -- boosted market prices when first imposed five years ago as a way to protect U.S. steel companies harmed by foreign competitors dumping products in America at below-market rates. The International Trade Commission in Washington voted 4-2 Thursday that those protections are still warranted.

Steel companies and lawmakers from steel-producing states such as West Virginia urged the trade commission to see the duties were kept in place, saying their removal would lead to a rise in cheap imports. The protections have been a rare boon for a steel industry that's endured at least 19 bankruptcies since 1998 and the closing or takeover of dozens of other mills.

"This ruling recognizes that the fundamental problems facing the steel industry haven't changed over the last five years," said Peter Morici, an independent economist who testified before the trade commission on behalf of companies such as Nucor Corp., the second-biggest U.S. steelmaker.

Increased steel production worldwide and increased supply in places like China could drive down prices again, Morici said.

U.S. steel prices reached a record high last year, though may fall in 2005 as distributors of the metal bought more than they needed from producers, traders and executives have said.

"Washington took a very long-term view with the decision," independent analyst Michelle Applebaum said in an interview.

The share of flat-rolled steel used in the U.S. that was bought overseas has fallen to 7.1 percent from 15 percent since the duties were imposed, and prices have tripled to a record $756 a ton in September from $260 in March 2002.

Maintaining the duties "will not only be good for the domestic steel industry, but, by strengthening the industry, will be positive for our customers as well," Nucor Corp. Chief Executive Officer Dan DiMicco said in a statement yesterday.

The industry says tariff protection is still needed as it continues to rebuild itself after a surge of imports into the U.S. caused profit declines and job losses at American steel companies in the 1990s.

"The industry has made great strides in terms of remaking itself and recovering from the steel crisis, but the work is not complete," U.S. Steel Corp. CEO John Surma said in a statement. The company is the nation's biggest steel producer.

U.S. Steel's average price of flat-rolled steel, the Pittsburgh-based company's biggest business, jumped 47 percent in the fourth quarter to $623 a ton. That surge led to profit of $462 million, or $3.55 a share, compared with a loss a year ago.

Net income last year at Charlotte, N.C.-based Nucor, the second-largest U.S. steelmaker, rose 18-fold to a record $1.12 billion as sales rose 82 percent to $11.4 billion.

"It's unfortunate that the steel industry is receiving continued protection it doesn't need," said Lewis Leibowitz, a lawyer with Hogan & Hartson LLP in Washington who represents steel consumers such as Illinois Tool Works Inc. "This is going to hurt consuming industries for the next five years."

Ford Motor Co., the second-biggest U.S. car company, Whirlpool Corp., the No. 2 maker of home appliances, and other U.S. manufacturers say the duties are increasing their costs and squeezing profits. Thriving steel companies no longer need the protections, they contend.

"They got the steel producers through a necessary restructuring. It's worked. Performance has improved dramatically since 1998," said Ford spokesman Ed Lewis. "Lifting the duties won't hurt producers and would be a small step toward making the U.S. market more competitive."

Representatives for Russian steel companies Severstal Group Holdings, Novolipetsk Iron and Steel Corp. and Magnitogorsk Iron & Steel Works testified in favor of lifting the duties last month. Company representatives from Japan and Brazil didn't show up for the trade commission's hearing.

Brazilian steel companies have been paying an average duty of 50 percent on steel shipped to the U.S., while the Japanese pay 29 percent. Those tariffs are high enough to have effectively blocked imports from those countries.

Russian companies are operating under a special suspension agreement that places a cap on how much they can export to the U.S. but doesn't levy any extraordinary tariffs.

U.S. factories consume about 68 million tons a year of hot-rolled steel, the most commonly used steel product in cars and household appliances. On top of the hot-rolled duties that began in 1998, President George W. Bush imposed across-the-board tariffs on steel in March 2002.

Sen. Jay Rockefeller, D-W.Va., warned the trade commission last month that scrapping the tariffs will lead to a return of dumping, hurting U.S. businesses and steel workers. He praised yesterday's ruling.

"This decision is a victory for our steel industry," Rockefeller said in a statement yesterday. "It will help protect the livelihood of our steelworkers."

In 1997, the year before the duties took effect, Brazil, Japan and Russia dumped 7 million tons of steel on the U.S. market, according to a March statement from Rockefeller's office. In the first year after the tariffs were imposed, that number dropped to 126,000 tons.

According to World Trade Organization rules, the U.S. must review the need for the tariffs at least every five years.

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